IVD Medical Holding's (HKG:1931) Shareholders Will Receive A Bigger Dividend Than Last Year

IVD Medical Holding Limited's (HKG:1931) dividend will be increasing from last year's payment of the same period to CN¥0.0556 on 6th of June. This will take the annual payment to 6.7% of the stock price, which is above what most companies in the industry pay.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. IVD Medical Holding's stock price has reduced by 39% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

Check out our latest analysis for IVD Medical Holding

IVD Medical Holding's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, IVD Medical Holding's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

EPS is set to fall by 2.9% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 54%, which we are pretty comfortable with and we think is feasible on an earnings basis.

IVD Medical Holding's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2020, the annual payment back then was CN¥0.0479, compared to the most recent full-year payment of CN¥0.072. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. IVD Medical Holding has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, IVD Medical Holding's earnings per share has shrunk at approximately 2.9% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Our Thoughts On IVD Medical Holding's Dividend

In summary, while it's always good to see the dividend being raised, we don't think IVD Medical Holding's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think IVD Medical Holding is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for IVD Medical Holding (of which 1 is significant!) you should know about. Is IVD Medical Holding not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.